Ladies First in the Fight Against Demographic Change

Population aging is a profound long-term trend that will affect all of the nations in the Asia-Pacific region during the next 50 years. One of the biggest pressures from population aging lies in the labor market, because declining fertility and a greater proportion of retired citizens reduces the number of available workers, contributing to both a loss of skills and upward pressure on wages.

In our previous post, we highlighted the fact that Japan, South Korea and China are currently undergoing difficulties associated with an aging population. One way of easing demographic challenges in these countries can come from increasing the percentage of women in the labor force, i.e. the female labour force participation rate.

IMF data show that women are significantly under-represented in the labor force in Japan and South Korea,

Gaps Between Male & Female Workers (% Employed), 2009

Source: IMF

Furthermore, wage gaps between men and women are notably high in the two countries.

Wage Gaps (%) in Total Salary, Female vs. Male (Male Wages Less Female Wages)

Source: IMF

IMF economists Yuko Kinoshita and Fang Guo have examined labor markets in both Japan and Korea and proposed ways of both addressing the problem of female under-representation and closing gender wage gaps. Their recommendations break down as follows:

  • Reduce child cash allowances to boost the number of females in regular employment. Child allowance payments act as both a disincentive to finding regular work and a cause of gender pay imbalances. Females look to find informal, irregular employment work, at the same time as receiving child allowance, and often these jobs are badly paid compared to prevailing rates in the labor market, thus reinforcing a gender wage gap.

  • Introduce flexible work arrangements. Long hours seem to be a hallmark of the working culture in Japan and Korea but they act as a disincentive to work, particularly for those looking after children. These kinds of working arrangements prevent well-qualified women in Japan and Korea from taking up regular employment, instead taking non-regular low skilled jobs with flexible hours but no security or benefits.

  • Invest more in childcare services. Easing the burden of childcare will go a long way to freeing up females to gain regular, well-paid employment. Guo and Kinoshita find that Japan and Korea spend little on public childcare services in comparison to other, more developed nations and that private sector alternatives are significantly more expensive in comparison. Therefore, raising spending on childcare services can offer support to tightening labor markets.

Japan is already in the midst of a profound demographic shift toward a society dominated by the elderly and, as we have previously discussed, South Korea will see its working population peak in 2017.

Other countries in Asia will not be far behind, China, in particular, will see a profound shift to an aged society within the next ten years.

Therefore, governments in the region have to think seriously about how to tackle both the problem of ageing and also increasing not just female employment but also wage gaps.

The above proposals are a step in the right direction but, since employment patterns often reflect deep cultural norms, it will take brave leadership to change mindsets and reverse low female labor participation rates. For the good of their countries and, by extension, the good of the region, lets hope leaders in Japan, South Korea and China are up to the task.

#Reform #Labour #Demographics